This bookkeeping shortcut will cost a seller five-figures on closing day - How To Sell a Business

This mistake will cost a business seller ‘five-figures’ on closing day.

I remember when I started running my first ‘real business.’  I call it that because I had sales everyday and had to keep up on deposits, etc.

I wanted to use accounting software to simplify the process.  This was back in 2005.

I hired a woman to come over to my office and teach me how to use Simply Accounting, she taught me why it was important to ‘track reality’ in my books.

For example, if I didn’t accurately record payables, I could end up with lots of money in my bank account and mistakenly believe that the money was mine, when it may actually have been my suppliers’.

Watch me tell the story and of how a seemingly innocent bookkeeping shortcut will cost one business seller over $10,000 on closing day: https://youtu.be/cOCB26GOzwk

As a business owner, you need to know your numbers.  Every line of them and make sure they make sense every year.

If you want to learn more about how I help business owners sell their own business and avoid paying a commission, check out www.HowToSellMyOwnBusiness.com

There are plenty of FREE resources there to help you begin planning your transition out of your business.

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

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Improve your business each and every day, download my FREE daily cheat sheet and hang it in your work area to keep yourself focused. https://gum.co/15Questions/FREE 

Do you live in Toronto?  I’ve got three workshops coming up for Toronto in September.  Book now to get summer special ticket pricing.  http://davidbarnett.eventbrite.ca Some sessions have fewer than 20 seats left.

Thanks and I’ll see you next time.

How to push your business' 'self-destruct' button... You can ruin everything really fast! David C Barnett

How to Sell a Business – Keeping it a secret

One of the most distinct aspects of the market for small businesses is that it is a secret one.  The worst thing that a business owner can do is publicize the fact that their business is for sale.

Telling people that you want to sell your business is like pushing the ‘business self-destruct’ button.

If any of the following stakeholder groups finds out that a business is for sale, the business could be ruined and all that an owner has worked for could be destroyed:

• ·         Employees
• ·         Customers
• ·         Suppliers
• ·         Lenders
• ·         Competitors

I explain why secrecy is so important for each group in this NEW video: https://youtu.be/m0wWErgtlM0

I also explain what business for sale really means to 95% of the population.

Let me give you a little info on each one:

Employees: If they think change is coming, they may bail.  The best employees always have available opportunities with competitors.

Customers: If you deliver in the future or people rely on a warranty, they won`t have any faith in your future if they find out you’re for sale.

Suppliers: If these guys think there`s something wrong say `goodbye` to your trade credit.

Lenders: I’ve had more than one client have their credit line cut when their banker found out they were for sale.  I explain why in the video.

Competitors:  These guys will use anything they can to steal business.  News that a business is for sale will help them sew doubt in the minds of prospects.

If you want to learn how I help my clients advertise their business for sale confidentially, check out www.HowToSellMyOwnBusiness.com

There are plenty of FREE resources there to help you begin planning your transition out of your business.

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

If you would like to hear from me weekly before anyone else, you can sign yourself up at www.DavidCBarnett.com 

Do you live in Toronto?  I’ve got three workshops coming up for Toronto in September.  Book now to get summer special ticket pricing.  http://davidbarnett.eventbrite.ca Some sessions have fewer than 20 seats left. Learn more about these workshops in this video: https://youtu.be/l2T3pwr9lkw

Thanks and I’ll see you next time.

This one change earned a business seller $250,000 more! - David C Barnett

A few years ago I put out a video on YouTube about a guy who sold his business for more than I thought he could by offering financing terms to a buyer that were better than the bank’s. Watch that video here: https://youtu.be/rkdB8eLl6Xw

Just this week I had the opportunity to coach a seller along the same lines.  In fact, it worked out so well that his words to me were, ‘the money I’ve invested with you is the best money I’ve spent in my entire life.’

Those were very kind words.

Watch the story of the negotiation here: https://youtu.be/iqo5EngtGa8

This seller was properly prepared and he and his spouse were going to be able to benefit from tax-free gains because they were doing a share sale of their business.

He had come to me for advice on the negotiation and I showed him a way to get the buyer to agree to a price that was $250,000 higher than what they had previously agreed to by offering to change the terms of payment.

Having the correct advisors working with you in a complex transaction like this is worth every penny.  When it comes time for you to buy or sell a business, give me a call for help.

If you want to learn more about how I help business owners sell their own business and avoid paying a commission, check out www.HowToSellMyOwnBusiness.com

There are plenty of FREE resources there to help you begin planning your transition out of your business.

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

Improve your business each and every day, download my FREE daily cheat sheet and hang it in your work area to keep yourself focused. https://gum.co/15Questions/FREE 

Do you live in Toronto?  I’ve got three workshops coming up for Toronto in September.  Book now to get summer special ticket pricing.  http://davidbarnett.eventbrite.ca Some sessions have fewer than 20 seats left.

Thanks and I’ll see you next time. 

Selling your own business- Podcast interview with Mike Saunders

Mike Saunders had me on his show this week.. It was a lot of fun. Take a listen:


Find it online here: http://businessinnovatorsmagazine.com/david-barnett-howtosellmyownbusiness-com/

Learn how I can help you sell your own business at www.HowToSellMyOwnBusiness.com 

Buy a copy of the book as a .pdf or from Amazon.ca or Amazon.com or other Amazon stores worldwide.

Download a FREE copy of '12 Things to do before you consider selling your business.'

Don’t fall for this income double-counting trap when analyzing a small business

In the past month I’ve had two business-buying clients who’ve gotten caught in this trap. 

If you buy a business believing that the cash flow to the owner is $200K and in reality it’s only $100K, you’ll be in big trouble.

How does this happen? Watch the video here:  https://youtu.be/64KgCW9I0wo

In order to understand what is going on in a small business, a process of normalizing the income statement is necessary.

We need to understand the true benefit of ownership.  Sometimes, personal benefits are hidden in the expense lines.  For example: a restaurateur who takes personal groceries home from the business.  These items can add up substantially.

In the normal process of doing this, the analyst takes the net income and then starts ‘adding-back’ items to get a new normalized cash flow.  This cash flow figure is called the Seller’s Discretionary Earnings or SDE.  It is the total cash available to an owner of the business.

Small businesses are typically valued as a multiple of SDE.

Here’s the problem: sometimes owners don’t take a salary which would appear in the wages expense, they instead take dividends which happens on the balance sheet.

Net income from an income statement appears in the equity section of the balance sheet.  At the end of the year, it gets rolled into ‘retained earnings.’

So if a seller is taking dividends, it is removed from the equity section of the balance sheet.  If you add the dividends to net income, you are effectively double-counting the same dollars.

Don’t let it happen to you. 

Learn how to buy a business the right way and control risk.  Visit www.BusinessBuyerAdvantage.com to learn more.  If you want to engage my help, send me a message or call me at 506 381 8416.  I work with people all around the world.

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

Sign up to my FREE weekly e-mail to get information like this every week before anyone else.  Sign up on the left of this post.

Do you live in Toronto?  I’ve got three workshops coming up for Toronto in September.  Early ticket pricing ends June 30.  http://davidbarnett.eventbrite.ca

Thanks and I’ll see you next time. 

Should you Sell Your Business to your Employee? Viewer Question - David C Barnett

Two weeks ago I was in Dartmouth, NS talking with the commercial loan officers of Atlantic Canada’s credit unions about business valuation.

At the end, I got a question from the floor about succession planning.  ‘Does it make sense to sell a business to an employee?,’ asked one of the attendees.

I know you’re going to hate this but, it depends.  Watch the full story in this video: https://youtu.be/ODZF3gTeETc

In well organized, maybe larger businesses, managers have well defined roles and responsibilities.  They manage their own business plan and make decisions about resources and employees.  It’s up to them to perform and they’re accountable for what happens.

This type of person may be able to transition into entrepreneurship.

In many smaller businesses which are ‘technician run,’ to borrow the terminology from Michael Gerber’s E-Myth book, it is not so easy.

These small business operators keep most of the strategic procedures and policies in their heads and ALL the responsibility.  Sometimes a long-time employee who is really great at handling a long list of complex TASKS is given the title of ‘manager.’  This doesn’t actually make them a manager.

I’ve been involved in two such successions and both buyers failed after about two years.  They were never the right candidate to weather the stress involved in business ownership. 

Most importantly, however, they didn’t have the drive and ambition.  If they did, why were they still working in someone else’s shadow for all those years?

Most business owners want to try to find a buyer on their own.  80% of small businesses are sold in the private market and mostly because owners don’t want to pay any type of commission to a broker.

So who do you look for when you need to find a buyer?

Try the ones who got away.  The good employees that you hated to lose because they knew the business and were really capable.  The ones who left because they wanted more.  These are the people with ambition.

If you want to learn more about how I help business owners sell their own business and avoid paying a commission, check out www.HowToSellMyOwnBusiness.com

There are plenty of FREE resources there to help you begin planning your transition out of your business.

Please remember to like and share this article, it’s the only way the people who run the internet have of knowing if the content is any good or not. The more you share, the more likely someone who needs this information will be able to find it.

If you would like to hear from me weekly before anyone else, you can sign yourself up in the form to the left of this post.  

Improve your business each and every day, download my FREE daily cheat sheet and hang it in your work area to keep yourself focused. https://gum.co/15Questions/FREE 

Do you live in Toronto?  I’ve got three workshops coming up for Toronto in September.  Book now to get early ticket pricing.  http://davidbarnett.eventbrite.ca

Thanks and I’ll see you next time. 

The Story of two ways to exit a company in the tech sector.

My friend Jim Flemming's latest e-mail contained this great story about two exits from tech companies.  I thought the story was so interesting that I would share.  I've seen my share of people who focus too much on sales over actually building value in their companies as well.

Back to you Jim......

Rich vs. Famous  

    Have you set a goal for your company this year? If you're like most business owners, you're striving for an increase in your annual sales. It's natural to want your company to be bigger because that's what everyone around us seems to celebrate.

 

    Magazines profile the fastest growing companies, industry associations celebrate their largest members, and bigger seems to be better in the eyes of just about every business pundit with a microphone.

 

    Growth can come at a steep price and can even detract from your ability to build your personal wealth.

 

The Contrasting Exits of Michael Arrington

 

    For example, let's take a look at an entrepreneur named Michael Arrington. Arrington started Achex in 1999. It helped facilitate payments in the early days of the internet, and Arrington was focused on growing it. He accepted two rounds of outside capital to fund the company's expansion.

 

    Achex was ultimately sold to First Data Corporation for $32 million in 2001. Unfortunately, because Arrington had been focused on growth above all else. He had raised two rounds of financing and also reduced his personal stake in the company down to next to nothing. As he told Business Insider, "When I started my first company,Achex, we raised $18 million in venture capital in 2000 from DFJ. The company later sold for $32 million, but due to a 2x liquidity preference (common in those days), the founders essentially got nothing, just a few hundred thousand dollars to not block the deal."

 

    Arrington then went on to start the technology blogging website TechCrunch in 2005.This time Arrington wanted to grow the business, but not at the expense of his equity. Instead, they grew the company within their means and funded the business largely out of cash flow. Arrington still owned 80% of the company, according to Business Insider, when he sold it for approximately $30 million.

 

    Apparently Arrington had learned his lesson....growth is good, but not at the expense of all else.

 

The Alternative to Growth at All Costs

 

    The alternative to focusing on sales growth as your primary objective is to focus on the value of your equity within your company. Growth will have a positive impact on your company's value, although your growth rate is only one of the eight drivers that impact what your company is worth. As you build your business, you will be faced with many forks in the road where growth may come at the expense of both your company's value, and your personal wealth. For example:

• You may have to dilute your personal stake in the company by taking on outside capital. Depending on the return your investors are looking for, and the performance of your company after you take on outside investors, your smaller slice of the larger pie may be worth less than a larger slice of a smaller pie.

• Selling your largest customer more products and services may be a relatively easy way to grow your top line, although if they already represent more than 15% of your sales, the extra revenue may dilute the value of your company because "Buyers" discount companies with too much "single customer" concentration.

• Giving "lazy" customers 90 days to pay may keep them buying, although those charitable payment terms may detract from the value of your business because a "Buyer" will have to fund your working capital.

• You could choose to invest your sales and marketing resources into winning a big, one-time project that would boost your sales although this may not boost the value of your business, which may be more positively impacted by a smaller amount of recurring revenue.

    Growth is important and how big your company can get is one of the eight drivers of your company's value. Growth is only one of eight factors....

 

To learn about the other seven, just click on this link to my website

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